I like breaking things down into two or three. Those are numbers I can count to. Numbers my little pea brain can keep track of. Research suggests the human brain can comfortably track about three things at once—with four things being “difficult” and five things being “nearly impossible.” (See How much can your mind keep track of? (at EurekAlert!).)
Who needs to be strained? Let’s stick with two or three things at once.
These constraints of the human brain (and in particular mine) sometimes feel like they are hamstringing our quest to “get rich” (to achieve financial independence as we are defining it). There is a ton of personal-finance information out there—how to get rich quick, how to get rich over a period of 40 years, what to do now, what to do next, what I should have been doing yesterday, and so on. How to keep track of it all, two or three things at a time?
Well, based on my post, Economic Mobility — What Are Your Chances of Moving Up, Really?, I’m operating based on the conclusion that reaching the “top rung” of wealth is best accomplished by saving more money. And there are only two ways to save more money:
- Earn More Money;
- Spend Less Money.
Simple—and sufficiently few things to track! And no, nothing revelational or earth-shattering here. But this isn’t meant to invoke Einstein—it’s really more of an organizational framework. A checklist. Am I doing everything I can or should be doing to earn more money? Am I doing everything I can or should be doing to spend less? It’s easy to get caught up in only one of the two. So let’s look at each way a bit more.
Ways of Earning More Money
- Get a raise or bonus at your current job (or increase profits at your business).
- Move to a new job (or business) with higher income.
- Get an additional job.
- Start a side business.
- Make investments that generate income (interest, dividends, rent, etc.)
- Make investments that appreciate in value.
- Create something that generates income (e.g., an invention, book, or artwork for which the rights can be sold or licensed).
How many of these are feasible for each of us? Which would make sense to start pursuing this year?
Ways of Spending Less Money
- Reduce ongoing fixed mandatory expenses (e.g., move to get smaller mortgage or lower rent, refinance mortgage, refinance student loans).
- Reduce ongoing variable mandatory expenses (e.g., tax planning/shelters, conserve utilities usage, buy energy- or water-saving appliances, manage food expenses, bargain or thrift shopping for clothing).
- Eliminate or reduce other ongoing expenses (e.g., pay down debt, refinance debt or otherwise move it to lower interest rates, get by without a car or cable television).
- Make fewer discretionary purchases (e.g., eat out less, fewer home electronics and other gadgets).
- Reduce or save money on discretionary purchases that you do make (e.g., coupons, bargain or thrift shopping, shopping around, negotiating, free or lower-cost entertainment and recreation).
- Disaster planning and maintenance work to prevent potentially larger or catastrophic expenses later (e.g., insurance, car upkeep, home upkeep, asset protection).
How many of these are feasible for each of us? Which would make sense to start doing this year?
Of course, we’re way past two or three things at once now—but in the way I’m thinking of these, the lists of individual items don’t matter as much. They’re just illustrations of thinking at this moment about the two things on which I am trying to focus: earning more money and spending less.
Ah, two things. That, I can keep track of.
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